5 min read

“We all want human flourishing and the common good. Money helps, obviously, but if you want your donor dollars to go further, add the secret sauce of capacity building.”
—Dr. Kimberly Thornbury

Today’s nonprofit and business leaders are at a unique crossroads where the future looks nothing like the past. Tod Bolsinger, in his book Canoeing the Mountains, argues that, thanks to the combination of our culture, global economy, and digital age, where we are headed looks nothing like where we’ve been. To thrive in ministry and business, leaders must learn to anticipate and adapt. Capacity-building gifts are motivated by the belief that small, strategic investments can unlock organizational achievement and flourishing in the nonprofits we love. What if nonprofits could produce more output because of a $5,000 investment rather than a $50,000 check? Both are good, but capacity-building gifts are strategic investments to catalyze the organizations we love.

Philanthropy today has increasing exposure, accountability, and alternatives. Not only do givers expect to see quantifiable returns on their philanthropic investments, but nonprofit leaders are expected to manage giving differently. For too long, the nonprofit sector’s reputation has been one of a vicious cycle of dependency on giving with new and recurring needs surfacing year after year. For too long, philanthropy has fueled this cycle. While donor revenue will and should always be a reality of nonprofit sustainability, organizational leadership and fiscal stewardship are coming under a microscope. Good intentions from nonprofit leaders with poor business practices and unclear results won’t cut it. Yet, the same expectation stands for donors. Todd Graves, Chairman of the Herzog Foundation, wrote in an op-ed to American Enterprise Institute that philanthropy’s success is measured by results, not good intentions. Nonprofit success is philanthropic success, so how do we help organizations break a cycle of need and enter into the freedom of margin?

From its inception, the Herzog Foundation board chose not to prioritize direct grantmaking, capital or general gifts. Rather, the primary channel of our investment into K-12 US education would be to catalyze school leaders through high-quality, accessible leadership development programs. Despite Stan Herzog, our founder, leaving hundreds of millions of dollars to the endowment, that amount is a drop in the bucket compared to what has historically been given toward education in this country, and it is only a minuscule fraction of what private, Christian education needs to sustain its newfound growth.

According to the Blackbaud Institute, the education sector received 14% of all charitable giving in 2019, totaling $64.11 billion, second only to religion. US education rates are average at best on the world stage, many urban government schools have failed to maintain accreditation, and student mental health wellbeing is on a frightening trajectory. The CDC reports that 42% of students feel “persistently sad or hopeless,” with 22% of students reporting that they have seriously considered attempting suicide. Literacy rates serve as another example. The Barbara Bush Foundation for Family Literacy reports that 54% of adults lack proficiency in literacy, reading below the equivalent of a sixth-grade level. The education sector is just one example of many where endless giving has resulted in little to nothing to show for it.

More money poured into solving today’s problems is not the solution. Nonprofits have the potential to change communities for the better, yet between people and financial management, time spent on fundraising, talent shortages, and the VUCA environment we live in, many nonprofits struggle to find sustainability as they pursue their mission.

As givers, arguably the most valuable investments we can make are in strategic and targeted capacity-building initiatives. Here’s why: capacity building is identifying and investing in ways to grow an organization’s capacity to maximize its impact. It is an investment that equips leaders with the perspective to question the status quo, find new ways to marry efficiency and effectiveness, capitalize on new technologies, and seek employee flourishing. Updated systems, learned or hired skillsets, personnel changes, and improved processes are significant factors to organizational impact, yet the single most important component of growing an organization’s effectiveness is growing the leader’s capacity to lead well. And that begins with personal transformation.

Capacity building investments must start with the leadership of the organization. 

Daniel Goleman reports that leadership style is responsible for 30% of a company’s bottom line. Leaders drive results, or the lack thereof. Organizations are living organisms made up of humans, each person with their own skillset, perspective, and value, but each with their own shortcomings. The mark of a true leader is not just the ability to admit that they have shortcomings, but to identify and articulate the barriers holding them and their team back from achieving real results.

Consulting, if focused on organizational independence, can be a healthy method of capacity building. However, helping an organization hire consultants is no substitute for personal capacity building. In the age of buying or googling knowledge, wisdom and foresight are ever more valuable. Capacity building must grow agility and innovation from within for organizational evolution. A dollar spent to unleash the potential of a nonprofit leader is an exponential investment compared to a dollar spent in professional fees.

All too often, nonprofit leaders fall victim to the tyranny of the urgent. The tension between doing that which is urgent and that which is strategic is ever-present for nonprofit leaders. Targeted capacity-building investments help leaders climb out of the tyranny of the urgent and into the freedom of margin. A growth mindset must win out against the day-to-day drudge, and when this mindset shifts, our leaders have the personal capacity to be more resilient when challenges arise and to be more aggressive when opportunities surface. They understand the need to surround themselves with a well-balanced team and to pursue organizational longevity over personal achievement.

Capacity building investments must identify the dysfunctions that steal joy from nonprofit work and stifle impact.

At Herzog Foundation’s Strategic Planning Training Retreat, we identify the primary joy-stealers of nonprofit work as the following: dysfunctional systems, dysfunctional people, and dysfunctional leadership. The antidote is what Jim Collins calls for: disciplined people with disciplined thinking that leads to disciplined action. Herzog Coach Erik Twist states, “The noblest of visions can only be actualized through a foundation of solid operational discipline.”

Capacity-building investments are motivated by the belief that, with the right resources and training, nonprofit leaders are equipped to identify and root out dysfunctional practices. Nothing stifles impact, or causes employee burnout and turnover, more than tolerated organizational dysfunction. “Tolerated” does not mean that these dysfunctions are supported by leadership, but that leadership allows employees to live with these dysfunctions every day. It takes discipline to root this complacency out. As thought leader Patrick Lencioni states in his book The Advantage:

At the end of the day, at the end of our careers, when we look back at the many initiatives that we poured ourselves into, few other activities will seem more worthy of our effort and more impactful on the lives of others than making our organizations healthy.”

There is a fine line between having a disposition that focuses on problems and one that focuses on opportunities. In the Appreciative Inquiry approach, leaders are encouraged to utilize curiosity and proven strengths to find ways to improve organizational effectiveness, and that which is effective is not always that which is efficient.

Capacity building investments must invest in clear, practical solutions that meet felt needs.

Organizations build habits. The status quo sneaks up on leaders. One day systems and structures work, the next they become an impediment to growth and health. Capacity-building investments must focus on the organization’s immediate felt needs and build from there. If a child is just learning to swim, no good instructor will teach him the techniques of a butterfly stroke before those of the fundamentals. Think of Maslow’s hierarchy: before a person can function at their highest level, their basic needs must be met. Herein lies the reason frameworks like EOS, the Entrepreneurial Operating System model, thrive. EOS is a simple set of concepts and tools that help businesses turn ideas into reality, and that take discipline to implement. Concepts taught in the EOS model first address the reality of the human side of organizations—where there is misalignment, leadership must step in, identify the reality, and uncover practices that prevent mission advancement.

Simplicity is key; clarity is an absolute; curiosity is fundamental. As my dad used to say, keep it simple, stupid! Fool-proofing operational systems frees leaders to invest their time where they reap the greatest reward: relationships. Nonprofit leaders must implement new ideas and processes that meet the needs of their organization, its personality, and its goals. Meeting immediate, felt organizational needs unlocks margin. Margin unleashes performance.

Think of capacity-building investments as a donor’s way of holding nonprofit leaders accountable. The reality is that accountability is an act of love, and our world today needs more of both.

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